Bill seeks to encourage growth of smaller casinos

To help spark new investment in Atlantic City, State Sen. Jim Whelan (D., Atlantic) has introduced a bill that would change the minimum room requirements and size of casino hotels in the resort he once served as mayor.

Instead of 500-room hotels with casinos of at least 60,000 square feet that New Jersey law now requires, developers would, under Whelan's plan, be able to build smaller: 20,000-square-foot casinos at hotels with at least 200 rooms.

Talk about instant results: Yesterday, an investor group, Och-Ziff Real Estate, announced it had struck a deal to build a $300 million Hard Rock Casino Hotel next to the Atlantic City Hilton.

The project, which fits the diminutive profile Whelan's measure describes, is to be built on a beachfront parcel at Albany Avenue and the Boardwalk owned by Atlantic Beach Gateway L.L.C., which includes Shore real estate developer Curtis Bashaw and former casino executive Wally Barr.

Atlantic Beach Gateway purchased the land, roughly 10 acres, in late 2007 for $80 million to build what was then billed as a $1 billion-plus mega-casino tentatively called the Gateway Project. Hard Rock would take over that project.

"We are intrigued by the newly proposed legislation, which makes entering the marketplace more manageable. Despite current headwinds, Atlantic City remains the country's second-largest gaming market and would be an exciting location for a Hard Rock Hotel and Casino," said Jim Allen, chairman of Hard Rock International.

Och-Ziff Real Estate, a private equity fund, is majority owner of Atlantic Beach Gateway L.L.C. The Hard Rock project would be about one-fourth the size and expense of the Gateway Project and would fit squarely with what Whelan envisioned when he introduced his bill in Trenton late Monday.

Under his proposal, developers could also build a casino in phases of not more than 30,000 square feet and not less than 200 rooms, with the requirement that they expand to the 500-room requirement within five years of licensure.

The bill is the first proposed change to the hotel-room requirement of the 1977 Casino Control Act, which legalized gambling exclusively in Atlantic City.

"It's absolutely a good thing," Whelan said of Hard Rock's decision. "I've had conversations with Jim Allen from Hard Rock and Och-Ziff for some time."

Part of his rationale for introducing the measure this week, Whelan said, was that "we have someone very credible, very real, and capable of doing a quality project."

The bill, which could go to a committee vote in May, got a mixed reception.

"This is a very narrowly defined legislation to benefit a specific special interest," said Bob McDevitt, president of Unite Here-Local 54, a union that represents 14,000 casino and hotel workers in Atlantic City. "They shroud it in that this is going to save the city.

"It's not going to save anything. This bill will not be anything more than a drain on what already is overcapacity in Atlantic City, with rooms and casino space. It's not going to change things."

Developer Christopher DiGeorge said the state must focus its efforts on encouraging redevelopment of existing casinos.

"Looking to old Las Vegas to create the new Atlantic City is definitely not the answer," said DiGeorge, chairman and CEO of DiGeorge Atlantic Properties, a Philadelphia-based company that wants to redevelop some current Boardwalk casinos. "We think until someone is able to turn around the 1,000- and 2,000-room casino hotels that already exist, why would anyone build anything new?

"Having low-budget competition suddenly pop up would greatly discourage the kind of investment we and others are considering," he said.

Whelan sees things differently: "The circumstances have changed dramatically in Atlantic City since 1977. Atlantic City is in a downward spiral, and we need a lot of things. One of the things we need is new product. Doing nothing is not an option."

His bill follows revelations by the competition, at least four of Pennsylvania's nine casinos, that they plan to build hotels with at least 300 rooms.

Harrah's Entertainment Inc. Eastern Division president Don Marrandino said that for the Hard Rock project to win his support, it could not be just a casino with 200 rooms and nothing else.

"I would have to see the non-gaming components of the project," he said yesterday. "It would have to be a project that would drive niche visitation through world-class amenities."

Though he said he has some concerns about opening up the Casino Control Act, Kevin DeSanctis, CEO of the $2 billion Revel Casino under construction on the Boardwalk, said he was encouraged by Hard Rock's interest.

"We were disappointed when MGM and Pinnacle decided not to invest," DeSanctis said. "This is a big positive."

Hard Rock said its project's first phase also would include world-class dining and entertainment venues, and a beachfront pool and spa.